The Indian rupee has hit a record low, plummeting in the wake of Donald Trump's victory in the 2024 US presidential election. The currency's sharp decline has been driven by a surge in the US dollar and rising bond yields, reflecting the market's uncertainty about the implications of Trump's return to the White House.

Navigating Turbulent Times: The Rupee's Rollercoaster Ride

Rupee Hits Rock Bottom as Dollar Soars

The Indian rupee closed at a dismal 84.28 on Wednesday, a 0.2% drop from the previous day's close. This marked the currency's worst single-day performance in over four months, as the US dollar index climbed more than 1.5% to 104.9. The 10-year US Treasury yield also reached a four-month high of 4.43% before retreating slightly. The offshore Chinese yuan, a key regional currency, also fell by 1.1% to 7.18 per dollar, further exacerbating the rupee's woes.

RBI Intervention Limits Losses, but Challenges Remain

The Reserve Bank of India (RBI) stepped in to mitigate the rupee's decline, with a senior trader at a state-run bank reporting that the central bank "heavily sold dollars" through state-run banks to cap the currency's slide. However, the RBI's efforts were only partially successful, as the rupee's losses were still significant compared to its regional peers, which fell as much as 1.8%.

Uncertainty Looms as Trump's Policies Loom

The risk of further rupee weakening remains high, as the currency's direction will be heavily influenced by the strength of the US dollar and the performance of the Chinese yuan. Trump's victory has raised concerns about his protectionist trade policies, including a proposed 10% tariff on imports from all countries and a 60% duty on Chinese imports. Analysts believe these measures could exert upward pressure on US inflation, potentially prompting the Federal Reserve to maintain its hawkish stance on interest rates.

Markets Brace for Fed's Next Move

While markets were initially confident that the Federal Reserve would cut interest rates by 25 basis points on Thursday, the odds of a similar-sized rate cut in December have slipped to around 68% from nearly 80% a day earlier, according to the CME FedWatch tool. This shift in market sentiment reflects the uncertainty surrounding the Fed's policy decisions in the wake of Trump's election victory and its potential impact on the US economy.

Navigating the Rupee's Turbulent Trajectory

The Indian rupee's plunge to a record low underscores the significant challenges facing the country's economy and financial markets. As the global landscape shifts in the wake of Trump's return to power, the RBI and policymakers will need to carefully navigate the turbulent waters ahead, balancing the need to support the rupee while also fostering economic growth and stability. The coming months will be crucial in determining the rupee's trajectory and the broader implications for India's economic fortunes.